The Federal Reserve Board ruled yesterday that Citicorp, which controls New York's largest bank, must divest itself of the nation's second largest mortgage company by 1980.

This was the second time that the central bank has told Citicorp that its 1970 acquisition of Advance Mortgage Corp. was not in the public interest because it was anti-competitive and concentrated too many resources in the giant bank holding company.

If Citicorp wants to be in the mortgage banking field, it could set up its own company, the Fed said in a unanimous decision.

A spokesman for Citicorp, which controls New York's Citibank, said the company thought it had "demonstrated beyond a reasonable doubt the public benefits which had resulted from our original acquisition of Advance."

Advance, which is headquartered in Southfield, Mich., has a mortgage portfolio totaling $3 billion, and has moved from the fourth to the second largest mortgage banking company in the nation since being acquired by Citicorp in 1970.

The Fed told Citicorp in 1973 that it had to divest Advance Mortgage, but permitted the company to file another petition asking the board to let it keep the mortgage bank company.

Citicorp subsidiaries, primarily Citibank, have assets of $77.1 billion and deposits of $55.7 billion.

Citicorp has to get Federal Reserve Board approval to keep its holdings in Advance mortgage beyond Dec. 31, 1980, under the terms of the amendments to the Bank Holding Company Act passed by Congress in 1970.

In its ruling yesterday, the central bank, on a 5-to-0 vote with two governors not present, said that Citicorp did not show that the public benefits of its owning Advance outweight the anticompetitive consequences.

The board agreed that Advance appeared to continue to make home mortgage loans in 1974 and 1975 "in contrast to the industry generally and in contrast to Advance's own performances before its affiliation with (Citicorp)".

Nevertheless, the Fed noted, even though total home mortgage lending rose. Advance continued to de-emphasize the portion of its total business devoted to single-family loans and to emphasize construction and related lending.